Gentiva Health Services: The cat's pajamas
It’s like this: would you rather spend your remaining days in your own bed with your cat at your feet, or in a sterile room with a sing-along piano across the hall? What if the home choice comes with health care that is cheaper than that in the room without a view? Gentiva Health Services (Nasdaq:GTIV) is betting on the cat.
And why not? Gentiva, which provides comprehensive home health care, has excellent odds. First, there is the aging U.S. population, the megatrend behind everything from teeth whiteners to new knees. Then there’s the growth in cost-effective home health care: in this multi-trillion-dollar business, home care continues to be the fastest growing component of all personal health-care spending, according to the Centers for Medicare and Medicaid Services.
There are comforts of home and there are comforts of cash. A one bedroom spot in an assisted living facility will average $3,008 monthly in 2008. Nursing homes, which provide constant care, are more expensive, averaging $76,460 for a private room, according to the Genworth Financial annual survey. Medicare-certified home care, which can include nurse visits, is $38 per hour, and costs are much lower for non-skilled-related home services.
Gentiva offers a lot more than direct home nursing. Services include specialty programs, such as orthopedics rehabilitation, and therapy for patients with balance issues and cardiopulmonary needs. The Melville, New York-based company also integrates home-care services for care facilities and performs administrative functions. Hospice and other services are available as well.
Operating 400-plus direct service delivery units in 36 states, Gentiva has more than 17,000 clinical and administrative employees. It has a size advantage in a highly fragmented industry where there are 13,000 providers, and it has been actively acquiring smaller businesses.
Gentiva’s focus is to grow Medicare admissions, expand its specialty programs and increase its dominance organically and through acquisitions. More than half its revenues come from Medicare, which appears set to provide stable payments for at least the next couple of years.
“We believe Gentiva will drive near-term growth by shifting its mix towards higher margin Medicare patients, adding specialty programs, and accelerating the pace of acquisitions,” said William Bonello, analyst at Wachovia Securities, in an Aug. 4 note. “We believe that GTIV has excellent long-term growth prospects, driven by acquisitions and increased demand for home health services.”
Michael Wiederhorn, analyst at Oppenheimer and Co., also sees opportunities for Gentiva to ramp up margins by shifting its payor mix to Medicare and other “episodic-based” payors. He too expects Gentiva to take advantage of acquisition opportunities in the home health-care arena.
Gentiva did its part to earn positive reviews by reporting a 13% year-over-year rise in revenues to $346.2 million for the second quarter ended July 1. Earnings per diluted share were up 32% to $0.41 from $0.31, and EBITDA was up 19% to $31.5 million.
All that and this: Gentiva raised its 2008 revenue outlook to $1.32 billion to $1.35 billion, up from previous guidance for $1.28 billion to $1.32 billion. It expects diluted earnings per share between $1.36 and $1.43, up from expectations for $1.32 to $1.40 announced earlier this year. Analysts look for earnings to reach $1.60 in 2009.
Shares haven’t disappointed, closing Thursday at $27.22 — the high end of a 52-week range of $14.03 to $28. They are up 43% year to date, moving far and fast on the good news of the second quarter. Shares hit a high after the quarterly report, gapping above $23. Gentiva started trading in 2000 below $5 and now has market capitalization of $779 million.
Standard and Poor’s noted that the highly competitive home health-care space and hospice industry have few barriers to entry. Gentiva’s primary competitors are for-profit and not-for-profit hospital-based home health agencies, local agencies and visiting-nurse associations.
Gentiva also added $12 million in revolving credit debt in the second quarter as it funded acquisitions of Home Health Care Affiliates and Physicians Home Health Care. Its long-term debt of $331 million is 48% of capitalization. Oppenheimer’s Weiderhorn — who rates Gentiva “perform” — said the balance sheet remains clean, though, as debt currently stands at 2.8 times EBITDA, a ratio that allows for lower rates, as part of Gentiva’s debt covenants.
Gentiva may need a little rest. But it will be throwing off those covers — and the cat — soon.
About the Author
Contributing author Jennifer Allen has two decades of experience as a writer and editor, mainly as a financial wire service correspondent.
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